The gaussian blur setting is pretty high (2 cm) for your object of 3 cm. I got the same behavior. Looks like .9 gaussian is the highest it will go without the edge.

Looks like you're trying to achieve a very soft but largely diffused glow behind your object? Maybe try a separate object behind with a radial gradient on screen? I think it would achieve the same effect.

I’d say it’s happening because Illustrator is a buggy piece of crap that hasn’t been out of beta in over a decade.

I find Illustrator's raster effects terribly anaemic. I prefer the versatility of a hand-made effect. For Outer Glow I add a stroke using the Appearance panel and drag it to the bottom of the stack of appearances. With the stroke selected I then apply a Gaussian Blur effect. This is more versatile than Outer Glow because I can alter the size of the effect using the stroke weight without touching the blur. I can also use a brush for the stroke or apply other effects, like Scribble.

This occurs to me couple years ago. I remember there's a formula where you can calculate the amount of blur/glow pixel in relate to DRES you need to set in order to get rid of the square edge and retain your effects appearance. The problem is I don’t remember what was the formula and yesterday I ran into the same problem again!